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Ofgem plan 'fairer' grid charges to benefit renewables

Ofgem said the proposed changes could lead to a drop charges wind farms in the north face

The electricity industry regulator, Ofgem, has published proposals which could lead to a big drop in the amount renewable energy generators in Scotland pay to connect to the grid.

At the moment generators pay more if they are further away but Ofgem wants to create a fairer pricing formula.

It said wind farms in the north of the country could see reductions of up to 60%.

But there are concerns the proposals will disadvantage Scotland’s islands.

The UK’s transmission charging regime has long been a source of frustration for the renewable energy industry and the Scottish government.

Transmission charges for generators and suppliers are set by National Grid using a formula approved by Ofgem. They account for 4 per cent of a household power bill.

Generators face higher charges to transmit power the further they are located away from areas of high electricity demand as it costs more to transport their energy to consumers. That means wind farms in the north of Scotland face hefty charges, while generators in the south of England receive subsidies.

Ofgem said its proposals for change were designed to be fairer, without resulting in increased costs to consumers.

Hannah Nixon, senior partner for transmission at the regulator, said: “The current formula was designed for a different era when Britain’s power all came from conventional sources like coal and gas.

“The mix of generators producing power is changing rapidly. More renewable and low carbon generators are connecting to the grid.

“So the charging formula needs to be updated to reflect the new realities of the generation mix.”

She added: “Renewable generators with a variable output are not using the networks continually. The formula needs to reflect this to ensure their charges are fairer.”

However, industry sources have told BBC Scotland they fear the plans won’t do anything to reduce the charges paid by wind, wave and tidal generators in Scotland’s islands, where’s there’s an abundance of renewable energy.

Energy Minister Fergus Ewing said: “Ofgem’s review of transmission charging must deliver fundamental and effective change and a charging regime that does not penalise generators and developers in the very areas with the best renewable resource.

“For this reason I am concerned that the current report does not go far enough in delivering a solution on transmission charges for Scotland and in particular our island communities. More work will now be done on this.”

Niall Stuart, chief executive of Scottish Renewables, said: “This is a step towards fairer charges for projects on the Scottish mainland, and the reforms will encourage rather than block investment in renewable electricity in Scotland.

“The changes will make the industry more competitive and allow it to invest more heavily in new technologies and the skills of the workforce.”

“The current system discourages investors from taking forward projects in Scotland as costs are higher than elsewhere in the UK.”

Scottish Renewables said the proposals could saving a large wind farms about £1.5m a year.

However, Mr Stuart expressed concern that developments on Orkney, Shetland and the Western Isles still face huge charges, with a wind farm on the Western Isles paying £77,000 for every megawatt of capacity in 2012 under the reforms, compared to a charge of £2,000 per MW in south west England.

He added: “The charges quoted for the islands potentially make development uneconomic, meaning a number of highly, highly productive wind farms may not go ahead; a blow to communities in Stornoway and Shetland which would have benefited from significant revenues over the coming years.”

He also highlighted the heavy charges the emerging wave and tidal sector would still face under a new pricing regime.

Labour’s UK Shadow Energy Minister Tom Greatrex said: “The costs must be met by those who benefit commercially from the transmission network - the Big Six energy companies.

“The new regime must be transparent and fair, without deterring renewable generation.”

Ofgem now wants to hear industry views on its proposals before making a final decision next April.

Following that, National Grid would table proposals to change the industry rules, meaning the new regime could be in place in 2013.